West coast WMT threat eliminated as Tesco limps home

December 7, 2012

Tesco and Walmart’s Asda division are intense competitors in the U.K. and that was supposed to be the case in the U.S. when Tesco arrived in 2007 with its Fresh & Easy format.

The first Fresh & Easy stores opened in California five years ago and in short order additional units popped up in Arizona and Nevada. Walmart took the threat from one of the world’s largest food retailers seriously and even experimented with a small format food concept of its own called Marketside. Four units were opened in the Phoenix market in 2008 under the Marketside banner to go head to head with Tesco’s Fresh & Easy. Walmart opted not to pursue expansion of Marketside and quickly closed the stores while retaining the Marketside brand identity for line of private label food and fresh products.

It took Tesco a little longer and a change in senior leadership before the company realized its 200 store operations was no longer worth purusing. Tesco this week announced that Fresh & Easy CEO Tim Mason was leaving the company as part of a process billed as a "strategic review," that sounded more like an outright sale of the unprofitable operation. The move was somewhat telegraphed in October when Tesco announced that new capital investment in Fresh & Easy would be tightly constrained while the business focused on reducing costs and improving the profitability of existing stores. However, after only two months the company said it had become clear that Fresh & Easy would not deliver acceptable shareholder returns on an appropriate timeframe in its current form.

"I have been clear since my appointment as CEO was announced that my role is to deliver long-term value for shareholders," said Tesco CEO Philip Clarke. "Following a year in which my priority for Fresh & Easy was to improve its performance, I have now made a fully-informed assessment of its longer term potential. (While) the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities. I have therefore decided to conduct a strategic review of Fresh & Easy, with all options under consideration."

The company said it already has had approaches from a number of parties interested in acquiring either all or part of Fresh & Easy, or in partnering with Tesco to develop the Fresh & Easy business. Progress on those efforts won’t be announced until full year financial results are announced next April.

If Tesco should ultimately divest itself of the U.S food retailing division it will be a far cry from the scenario envisioned by some when Tesco announced in 2006 that it planned to enter the U.S. market. A the time, the economy was roaring and the prospect of one of the world’s leading food retailers was thought to spell trouble for grocers in the West coast markets Tesco planned to target initially.

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